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Frequent-flier rewards: Change is in the air

Charisse Jones, USA TODAY
11:24 p.m. EST January 8, 2013

Frequent-flier rewards -- Change is in the air: Last year, Southwest, which carries more domestic passengers than any other airline, switched its loyalty program to one that awards points based on the fare a passenger pays rather than giving a credit for each flight. Virgin America and JetBlue similarly peg loyalty points to dollars spent rather than miles flown.(Photo: Kevork Djansezian, Getty Images)

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Rewards traditionally based on miles flown -- but that may shift to money spent

David Frisbie sometimes will pay extra for a roomier seat in coach. But he prefers to earn the loyalty points that can get him a free trip the old-fashioned way: based on the miles he flies rather than the dollars he spends.

"For the frequent traveler, loyalty ... is what ought to be rewarded," says Frisbie, a family counselor and author who lives in Del Mar, Calif., and flies at least twice a month. "The true value of a loyal frequent flier is far greater than whatever today's fare happens to be."

For frequent-flier programs, one of the airline industry's most popular perks, change is in the air.

Last year, Southwest, which carries more domestic passengers than any other airline, switched its loyalty program to one that awards points based on the fare a passenger pays rather than giving a credit for each flight. Virgin America and JetBlue similarly peg loyalty points to dollars spent rather than miles flown.

No legacy network carrier — United, Delta, American or US Airways — says it's planning to switch from the decades-old model that allows fliers to earn their way to a free trip based on the distance they fly. But some loyalty-program watchers believe it won't be long before a big network airline heads the way of some of their low-cost peers.

"I would suggest by this time next year there'll be at least one, if not more, of the major carriers that have adopted this kind of new normal among frequent-flier programs," says Randy Petersen, publisher of Inside Flyer magazine, which closely follows loyalty programs. "I think in five years we will have forgotten about the old system."

Awarding loyalty points based on ticket price would let airlines better reward passengers who pay more for their seats, contributing more to the carrier's bottom line, some airline officials and travel experts say. At a time when many miles are earned from activities other than flying, they say, an overall rewards program based on spending makes sense.

“I often pay the highest advertised price for a ticket — yet in many cases I get the same points as the person paying the cheapest fare.
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Faith Varwig, frequent flier from St. Louis

But critics say a passenger in coach who pays less but flies often to rack up miles for a dream vacation can be just as important as the flier who pays top dollar for a seat in first class.

"There is this belief that they're rewarding the wrong customers," Gary Leff, author of the travel blog View from the Wing, says of mileage-based loyalty programs. "I think it's a mistake to say you want to reward whoever is spending the most.

"If I'm a business traveler at a company with a contract with United, I'll fly United no matter what," Leff says. "You want to reward people who are choosing to shift their business ... and that might not be the person giving you the most absolute dollars."

Billions of dollars

Airline loyalty programs are big business. American launched the first program in 1981. The rest of the industry quickly followed. Most carriers won't reveal exactly how much revenue the programs bring in, but some program watchers, such as Leff and Petersen, estimate that they translate into billions of dollars through the sale of miles to banks, hotels and other businesses that award them to customers. That's on top of the purchases fliers make to get across the finish line — and onto a free trip and other perks — faster.

But not every airline offers a mile for a mile. Five years ago, Virgin America became the first U.S. carrier to link loyalty points to ticket price, with fliers earning five points for each dollar of their base fare.

"We really brought a fresh approach, trying to put value on what the customer is purchasing, vs. distance," says Phil Seward, director of guest loyalty at Virgin America. "One issue with mileage programs, they end up rewarding the low-fare traveler and ... risk under-rewarding the high-fare traveler."

Inside Flyer's Petersen says it makes sense that airlines may wish to offer greater rewards to bigger-spending fliers. "Someone can fly a lot with cheap tickets," he says, but "the airlines don't make a lot off those customers."

Frequent-flier programs that link points to spending also better mirror the way points are earned in other parts of the travel sector, such as hotels. "If you look at hotel loyalty programs, they're all based on how much money you spend. ... It's not how long I stay there," he says. "So while it is kind of foreign if we look at airlines, the concept is actually very familiar to most, if not all, road warriors."

Says Virgin America's Seward, "When these programs were initially designed, it was all about flying. With modern programs, you see a shift in the opposite direction. The members are generally earning more points or miles through partnerships, particularly credit cards. ... That's partly why the mileage-based model has become outdated."

But significantly changing programs that by definition are meant to inspire loyalty can be risky. It took Southwest more than three years to transition from a flight-based to a fare-based program in March 2011, says Jonathan Clarkson, director of the airline's loyalty program known as Rapid Rewards. When it announced the change, 60 days before it began, the carrier got an earful from some fliers. "They were very attached to the original," says Clarkson, "and so as you might imagine there was some pretty strong reaction from members who liked the old program and didn't see a need for change."

Members of Southwest's program earn 12 points per dollar for Business Select fares, which are the most expensive; 10 points per dollar for Anytime fares, and six points per dollar for Wanna GetAway tickets, Southwest's cheapest.

With the points-based programs, the number of points required for a reward trip also corresponds to the fare. A flight the day after Christmas, a popular travel day, would likely cost more points than one on the holiday.

Similarly, loyalty members can take advantage of fare sales to use fewer points. This year, Virgin America has offered one-way fares as low as $49, which could be redeemed for less than 2,000 points.

That points up a key distinction. Mileage-based programs have been criticized for the difficulty some members have redeeming reward seats, which are often limited in number and not available at all on certain "blackout" dates. Southwest, Virgin America and JetBlue allow fliers to redeem year-round as long as a seat's for sale and they have the necessary number of points.

"If you have enough points in your account to cover cost of (the) flight, we'll give it to you even if it's the last seat on the plane," Clarkson says.

JetBlue changed its frequent-flier program in November 2009, from one that awarded two, four or six points depending on flight length to one in which passengers earn three points for every dollar spent on their base fare along with eligible fees.

In the three years since the switch, redemption for reward seats has grown 500%, says Dave Canty, JetBlue's director of loyalty marketing. "We basically decided to go to a points-based program that basically became like another currency," he says. "It's a true loyalty program. It rewards you for being loyal to JetBlue, and it's also being loyal to you by returning those seats to you."

Some big network carriers, such as United, have bonus offerings that award extra miles to passengers who pay more to fly in premium cabins or the premium seats in economy.

But a complete switch from miles to fares for a long-standing loyalty program would be daunting, some airline officials say. "We're always anticipating the future," says Jeff Robertson, Delta's vice president of its SkyMiles program. "But the reality of that is, that type of change is massive. ... It has massive implications, and it requires massive analysis and would not be something we'd do without a lot of analysis and prep work."

Risking a backlash

Leff and other program watchers say that such a move by any carrier would likely draw a backlash.

"A lot of people who are engaged with you because of what you're offering now are going to be unhappy with something that's fundamentally different," Leff says. "People have been saving miles for dream trips for years. ... All of a sudden people could find their miles don't get them what they've been saving for, and that's when people get pretty emotional."

Emotions run strong on both sides. "I think earning loyalty points on how much you pay is the best method," says Faith Varwig, who runs a transportation security and technology consulting firm based in St. Louis. "As a frequent, and many times last-minute, business traveler I often pay the highest advertised price for a ticket — yet in many cases I get the same points as the person paying the cheapest fare. Awarding loyalty points based on cost would at least make paying the highest ticket price more palatable."

While she has top-tier loyalty status with Southwest, Delta and American, Varwig says she finds it much easier to redeem rewards with Southwest than the others. "While I have over 300,000 miles sitting in accounts with Delta and American, I have very few with (Southwest), since I can actually use them."

Randolph Jones, a management consultant who lives in Marietta, Ga., can also understand basing loyalty points on ticket price.

"From a business standpoint, on their side it makes sense," he says. "Higher fare price should be awarded greater reward points and lower fare price lower rewards. After all ... they are in business to make money."

Others prefer their loyalty be rewarded based on the distances they fly. "A mile is a mile is a mile," says Marcelo Almeida, a director of business development and account executive for a global education company, who lives in Coppell, Texas. "If I give American 100,000 miles a year, regardless of whether I flew first (class) or the most-discounted Web-special fare, I did give them my loyalty and my business. Therefore, I should get loyalty points based on that."